Telstra, Optus could co-own Coalition's NBN: Report

An analysis of the Coalition's options for the National Broadband Network if it wins the September election has suggested Australia's two largest telcos could take an equity interest in a modified NBN Co.

A report by Allen & Overy and Venture Consulting has suggested that should the Liberal-National Coalition win the federal election in September, Telstra and Optus could be brought in as co-investors with the government for a refocused NBN Co that would reuse hybrid fibre-coaxial (HFC) networks and expand wireless and satellite coverage.

One of the biggest hurdles that a potential new Tony Abbott-led Coalition government would face in changing the rollout of the National Broadband Network (NBN) from the current fibre-to-the-premises (FttP) network to a fibre-to-the-node (FttN) network would be renegotiating the AU$11 billion Telstra deal and the AU$800 million Optus deal to transfer their customers over to the NBN from the copper network and each telco's HFC networks.

Telstra CEO David Thodey indicated last week that he would expect shareholders to retain the full AU$11 billion value of the deal under any government.

The Allen & Overy and Ventury Consulting report, provided to ZDNet today, provides an in-depth look into potential options for the Coalition should it win the election in September and seek to scale back the NBN to FttN. Along with extended use of the satellite and wireless networks and the HFC networks of Optus and Telstra, there would have to be substantial renegotiation of the Telstra and Optus deals. However, it said that one method to get the telcos onboard would be to have them co-invest in an altered NBN Co with the government.

"Telstra and/or Optus could receive a minority equity position in NBN Co based on contribution of their copper and HFC assets," the report stated. However, it also said that it would not be enough to compensate the companies for their existing NBN deals.

"We are doubtful that they would accept the conversion of their current cash compensation into equity."

An alternative, the report suggests, would be to seek capital investment from global companies such as Canadian pension funds, which have a history of investing in Australian infrastructure companies like Macquarie Communications Infrastructure Group and, most recently, NextGen.

"While these investors will demand a higher return than government, it is not that much higher, and lower-priced consumer services can still be delivered off the back of a lower-cost structure and greater private sector efficiencies."

The report proposed three ways forward with NBN Co in the event that Malcolm Turnbull becomes the communications minister:

A renewed NBN Co that rolls out the altered network using Telstra's copper sub-loop and the HFC networks. Telstra and Optus would have equity in the company in exchange for handing over their network infrastructure to the new NBN Co

NBN Co could be split into two companies: Metro Co and Regional Co. This would mean that Metro Co would be attractive to private investors, while the government could continue to invest in the less profitable Regional Co

A new ASX-listed company called Net Co is created that is the combination of Telstra's fixed-line wholesale arm and NBN Co.

The report acknowledged that the last is unlikely to occur for the next few years if at all, and would probably be closer to being done around the time of the 2016 federal election.

There would need to be an adjustment in the breakdown of the different technologies used, the report stated. Instead of 93 percent covered by FttP, 4 percent by wireless, and 3 percent by satellite today, it would be more likely to see 83 percent covered by FttN/FttP/HFC, 10 percent on wireless, and 7 percent on satellite.

But the report made the assumption that 17 percent of premises will be passed by FttP by the time of the election, with 2.6 million premises covered by HFC and 10 percent covered by wireless and satellite, leaving the Coalition with 53 percent of premises left to address with a fibre-to-the-node rollout.

"If we assume that the FttN deployment can reach a further 30 percent of the population by the end of 2016, then by the next federal election, 75 percent of premises could be receiving high-speed connections, with the remainder of the population looking at a near-term solution."

The report is reliant on much of the media reporting on the Coalition's proposed policy. Turnbull has not yet unveiled his policy in full, but it has been reported that a more detailed policy will be released in the next few weeks. Turnbull has consistently rejected the notion of pricing his policy in full in comparison to the AU$37.4 billion Labor government project, stating that the Coalition would first need full access to the financials and contracts held by NBN Co.

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